Contact

Also on KPMG.com

The Autumn Statement on 25 November will outline the government’s spending plans while providing an indication of how far the fortunes of 15 million people in the North of England are likely to change in coming decades.

While the UK is on a steady course to recover from the depths of the 2009 recession, economic growth remains largely centred around London and the South East, with economic performance in the North of England lagging behind. The area comprising the North of England accounts for 19 percent of the UK economy, just below London’s 23 percent share. Stronger performance in the South will see the North’s share of the UK economy continuing to decline. Can the Chancellor reverse this trend and create a ‘Northern Powerhouse’?

Unemployment in the North East stood at 8.6 percent of the local labour force in September, the highest rate among any UK region. While unemployment was lower in the North West, below the rates for London and Scotland, the rate of economic inactivity - accounting for those who are no longer actively seeking employment while still of working age – was higher than in both London and Scotland at 23.6 percent.

If economic performance is to pick up in any meaningful way in the North of England, productivity as well as employment numbers will need to rise. Productivity is particularly important for boosting incomes in the North but as the table below highlights, there is a big divide between the North and South when it comes to the availability of even basic skills.

The North has also been less successful at attracting and nurturing businesses, the number of enterprises in the North West is 13 percent lower than the total UK rate, when measured against its population size. However, both the North West and Yorkshire and the Humber have done better than the North East, which is well behind the other two regions of the Northern Powerhouse in attracting business (see table below).

Region

Number of enterprises

Enterprises per 10,000 adult population

Percentage of UK rate

UK

2,449,415

467

100

North West

235,955

407

87

Yorkshire and the Humber

172,215

396

85

North East

65,735

305

65

Source: Office for National Statistics, 2015

Lower level skills and fewer opportunities translate into a much lower output per capita for example, the North East GVA per capita is just 74% of UK average. North West and Yorkshire’s GVA per capita are slightly higher at 81% and 85% of the UK average respectively, but still only half of the GVA per capita achieved in London..

Recent announcements of job losses in some of the most deprived areas of the North of England highlight the challenges faced by the government. The closure of SSI steel works in Redcar is expected to result in the loss of over 2,000 direct jobs and a further 1,000 on-site contractors, with Tees Valley Unlimited estimating 1,000 more jobs losses across the local supply chain, including suppliers and port handlers. This represents around 1.4% of the total employment in Tees Valley and a significant proportion of the area’s 24,900 manufacturing jobs.

Converting the Northern Powerhouse dream into a reality will require a mixture of steps and initiatives. These include a clear economic vision for the city regions, upgrade of local skills, transformational investment in transport, radical fiscal devolution to foment local leadership and accountability, as well as some focused fiscal concessions each targeting the different needs and areas of this diverse geography.

Parts of the North East of England remain attractive investment destinations for manufacturing operations thanks to the lower costs of property and lower wages than the rest of the UK. Recent investments from Sirius Minerals, Hitachi, Nissan and Rolls-Royce are testament to a few of the opportunities that now exist.

Yet the Northern Powerhouse needs to extend beyond the major cities of Liverpool, Leeds, Manchester, Newcastle and Sheffield and the areas that will benefit from connection to HS2. Of the 20 investment opportunities pitched to Chinese investors during the Chancellor’s recent visit to China, only two were in the North East and none in the Tees Valley and Durham region. Just as we should not ignore the economic potential beyond London, we should also not confine the momentum the Northern Powerhouse is gaining to a handful of lucky cities.